Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 107: Delegation as at threat in bargaining

Björn Segendorff
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Björn Segendorff: Department of Economics, Postal: Stockholm School of Economics, Box 6501, S-113 83 Stockholm, Sweden.

Abstract: in a bargaining game over the provision of a public good, two principals appoint one agent each to carry out the bargaining. Each agent has preferences over the outcome. Two institutional set-ups are studied, each with a different level of authority given to the agents. By authority is here meant the right to decide the own side's provision if negotiations break down. In equilibrium both principals choose agents with preferences differing from their own. The low-authority equilibrium Pareto dominates (with regard to the principals) the case of no bargaining (autarchy), but at least one of the principals is worse off compared to bargaining without delegation. The high-authority equilibrium is Pareto dominated by the low-authority equilibrium and it may even be dominated by autarchy.

Keywords: Strategic delegation; Nash bargaining solution

JEL-codes: C71; C72

27 pages, March 1996

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